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One sector that should benefit from declining crude oil prices is the domestic oil refining business. Continued weakness in oil prices brings improvement in gross refining margins - critical factor for refineries where their volatile nature has affected the profitability of the sector recently. However, the financial performance of the two refineries from Attock Group is anything but satisfactory.
1HFY15 proved to be nightmare for the two refineries of the only integrated oil and gas company in the country. Both National Refinery Limited (NRL) and Attock Refinery Limited (ATRL) plunged into losses. The damage began at the top where both the refineries posted a decline in revenues - 10 percent year-on-year for
ATRL, and 12 percent year-on-year for NRL in 1HFY15.
Market was hoping that 2QFY15 earnings would portray some growth due to improvement in gross refining margins induced by the falling international crude oil prices. Where NRL touted a profit in 2QFY15 versus a loss in 2QFY14, ATRLs performance in the second quarter of FY15 was pitiable as the losses accumulated further. Normally, ATRLs non-refinery operations lift the firms earnings, which again provided some buffer to the companys losses for the first six months of FY15.
Going forward, improvement in gross refining margins might be able to lift the sectors earning in the second half as crude oil prices continue to fall. NRLs and ARLs expansion into desulphurization and isomerization plants will also boost some growth prospects.


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National Refinery Limited
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Rs (mn) 1HFY15 1HFY14 Chg
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Net sales 91,703 103,986 -12%
Gross profit 698 1,810 -61%
Dist. & marketing exp (467) (539) -13%
Admin expenses (290) (233) 24%
Other income 774 713 9%
Operating profit 698 1,725 -60%
Finance cost (663) (1,426) -53%
Profit after tax (48) 30
EPS (Rs per share) (0.61) 0.37
Gross margin 0.8% 1.7%
Operating margin 0.8% 1.7%
Net margin -0.1% 0.0%
=============================================

Source: KSE announcement


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Attock Refinery Limited
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Rs (mn) 1HFY15 1HFY14 Chg
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Net sales 78,178 86,896 -10%
Gross profit (2,419) (414) 485%
Administrative expenses 239 203 18%
Distribution cost 23 21 9%
Finance cost 314 858 -63%
Other Income 850 792 7%
(loss)/Profit after
tax (refinery) (1,586) (813) 95%
Income from non refinery op 1,044 1,362 -23%
(Loss)/Profit after tax (543) 549
EPS (Rs/share) (6.36) 6.43
Gross margin -3.09% -0.48%
Net margin (refinery opr) -2.03% -0.94%
Net margin (overall) -0.69% 0.63%
=================================================

Source: KSE announcement

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